Suharto agrees to new IMF package: IMF Optimistic as Agreement is Reached on New Package for Indonesia

From BBC World Service
17 January 1998

After weeks of turmoil in the
Indonesian financial markets,
President Suharto today formally
endorsed a package of economic
reforms drawn up together with the
International Monetary Fund.

The head of the IMF, Michel Camdessus
was in Jakarta to sign the agreement
- and he spoke optimistically about
the impact of this latest accord:

Michel Camdessus:
This revitalized
programme is broad and far-reaching,
addressing all the critical problem
areas of the economy and deserving
the full support of the international
community. I am confident that if
this programme is implemented with
the determination and commitment that
I myself have seen over the past two
days, Indonesia should be able - soon
- to overcome its economic crisis.

So will the markets be impressed this
time? East Asia Today's Kathryn
Davies put the question to Keith
Richburg who covers Indonesia for the
Washington Post:

Keith Richburg
(Jakarta): So
far, at least in Jakarta, the market
reaction was mixed. The rupiah was
down a bit on the US dollar, in Hong
Kong the market was not impressed at
all, it dropped about seven per cent.
I think the problem is that people
have heard a lot of statements in the
past about what reforms and what
steps will be taken. People want to
see action now. They've heard enough
commitments and words and they're
ready to actually wait until things
get done before they're actually
convinced.

Kathryn Davies (Studio): How hard hit
are the president's children going to
be - at least in theory - by this
agreement?

Keith Richburg: On the surface, it
looks like the children will be hit
fairly hard, particularly Suharto's
son Tommy. He will be hit because
they're going to be removing all the
special tax and customs privileges
for his Timor national car. In
addition he's going to be hit because
the monopoly on cloves - the clove
trade, which is very important in
Indonesia for cigarettes and other
items - that's also going to be
removed, and Tommy has the monopoly
on that trade. One thing to bear in
mind though is that the interests of
the first family - and that means
primarily the six Suharto children -
are so wide-spread and so far-flung
that although they might get hit on
two or three or even a half dozen of
their projects, they've still got
vast interests in everything from
banking to telecommunications, to a
US$2.4 billion triple-decker toll
road that's being built by the
president's daughter, Tutut.

Kathryn Davies: At the other the
scale, how badly are the poor going
to suffer by the by the phasing out
of fuel subsidies?

Keith Richburg: The poor will suffer
greatly, and it will be interesting
to see the time frame for these
things. We knew until this agreement
that the president was reluctant to
make any of these badly needed
reforms before March, and that's the
date when he's scheduled to be
re-anointed by the constituent
assembly for another five year term
as president. I think the idea was
that they knew that these reforms
would hurt, and they would hurt the
working poor the most. And they
wanted to stave off any possible
unrest or demonstrations in the
street. The fuel prices were a
particular cause of concern because
everybody relies on buses to get to
work. Also very hard-hit will be
sugar and wheat. But they did not
mention rice: rice appears to be
exempt because apparently the
government sees that staple as just
too sensitive to lift. But the poor
will be hurt: there are going to be
lay-offs, there's going to be more
recession and I think everyone - when
they were announcing this agreement -
tried to keep in perspective that
this was not really a day for
celebration. It was a reminder to
people that the tough times were
really to come.

Kathryn Davies: The two sides have
agreed to set up a new high-level
joint committee to oversee the
implementation of these measures.
Does that suggest the IMF doesn't
trust Indonesia to carry these
reforms through?

Keith Richburg: I'm not sure it's a
matter of trust as much as it is
restoring confidence among the
population and investors: local and
foreign. This new National Economic
and Financial Resilience Council will
have an IMF person sitting on it as
an adviser. I think partially this is
a confidence-building measure more
than anything else.